Examining Even Loan Interest Rates... Financial Supervisory Service Announces This Year's Inspection Plan

Plan to Focus on Risk Management
Review of Unreasonable Loan Interest Rates and Operation of Interest Rate Reduction Request Rights

[Asia Economy Reporter Minwoo Lee] The Financial Supervisory Service (FSS) plans to focus on risk management related to real estate project financing (PF) risks, including liquidity and soundness deterioration, in its inspections of financial companies this year. Given the growing criticism of the financial sector as 'interest profiteering,' the FSS also plans to review the imposition of unreasonable loan interest rates and the operation status of the right to request interest rate reductions.

FSS Governor Bokhyun Lee announced the '2023 Inspection Operation Plan' on the 15th, outlining these details.

The foremost emphasis was on 'risk management.' The intention is to check preparedness amid significant macroeconomic uncertainties. The plan includes reviewing the portfolio risks such as the size of bonds held by financial companies during the interest rate hike period and the maturity structure of assets and liabilities. The FSS will analyze interest rate sensitivity by financial company and encourage vulnerable companies to improve voluntarily.

Particular focus will be placed on managing high-risk assets. Monitoring of high-risk sites related to real estate PF will be strengthened, and the risk management systems for alternative investments of financial companies will be examined.

Since various financial accidents occurred continuously during the COVID-19 period, internal control systems will also be reviewed. The FSS will inspect causes of financial accidents, procedural issues, and the appropriateness of accident reporting. Additionally, illegal and unsound practices such as illicit financial support related to major shareholders and affiliated companies of savings banks and asset management firms will be closely scrutinized. Risk management at the financial holding company or group level will also be checked.

The FSS plans to investigate the financial sector's 'interest profiteering' controversy, which has been fiercely criticized by the government. The FSS defined the recent situation as an 'unreasonable practice riding on increased market volatility' and stated it would examine whether unreasonable loan interest rates and fees are imposed and the appropriateness of the operation of the right to request interest rate reductions. Internal control status related to the Financial Consumer Protection Act and unfair sales practices such as 'kkeokgi' (forcing customers to subscribe to various products as a loan condition) will also be reviewed.

Other areas to be inspected include new business lines such as fund sales by internet-only banks, the use of personal credit information by MyData business operators, and the operational status of new systems (such as IFRS17) by insurance companies.

The FSS emphasized that it will also change the inspection practices themselves. The plan is to establish financial market stability and sound financial order through inspections that induce business improvements, preemptively eliminate risks, and focus on significant risks.

Accordingly, the return reports and inspection reports will be reorganized to focus on 'financial company business improvement,' and cases where it is difficult to determine sanctions will be addressed by raising caution and encouraging improvement. Regular inspection targets will be notified early in the year to increase predictability. However, financial companies with important risk information will be promptly identified through a rapid inspection team.

Inspections of verification parts by external professional institutions such as accounting firms and law firms will be simplified. Minor violations will be handled through self-inspections by financial companies, and the FSS will concentrate inspection resources on detecting serious violations.

Meanwhile, the total number of inspections planned for this year is 602, with a total manpower input of 23,202 person-days (including overlaps). This represents a 5.2% (30 inspections) increase in the number of inspections and a 13.6% (2,777 persons) increase in manpower compared to the previous year. Among these, regular inspections are set at 29 times with 8,035 person-days, including 9 times for banks (including holding companies), 4 times for insurance, 4 times for financial investment, and 12 times for small and low-income sectors. Ad hoc inspections are scheduled for 573 times.

On the 26th, Lee Bok-hyun, Governor of the Financial Supervisory Service, is giving opening remarks at the meeting between the Governor of the Financial Supervisory Service and insurance company CEOs held at the Life Insurance Education and Culture Center in Seoul. Photo by Heo Young-han younghan@

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